Dell founder gets his way as shareholders approve US$24.9-billion buyout

Dell Inc. shareholders approved a US$24.9-billion buyout led by Chief Executive Officer Michael Dell, giving him free rein to attempt a turnaround of the struggling personal-computer maker as a private company.

The founder’s victory, announced during a shareholder meeting today at Dell’s headquarters in Round Rock, Texas, caps seven months of public jousting between the buyout group and investors led by billionaire Carl Icahn and Southeastern Asset Management Inc. who clamored for a higher price, pushing the deal to the brink of defeat and two price boosts. The takeover of the third-largest PC maker is the biggest LBO since Blackstone Group LP took Hilton Worldwide Inc. private in 2007.

CEO Dell, who founded the company as a college student in 1984, proposed taking it private in February to stem years of ebbing sales and profit as consumers shun PCs in favor of computing on smartphones and tablets. He plans to boost investments in mobile devices and data-center machines without the need to satisfy profit-hungry public investors.

“There’s a lot of CEOs that have tried to take companies private to get away from the market,” said Michael Cusumano, a professor at the Massachusetts Institute of Technology’s Sloan School of Management. “It’s an uphill battle.”

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Dell’s path mirrors the rise and fall of the PC industry. Along with peers including Compaq Computer Corp. and Hewlett- Packard Co., Dell rode a wave of growth as PCs became mainstream devices in the late 1980s and 1990s. The company also flourished by pioneering low-cost manufacturing and direct shipping to customers. Yet it and others fell out of step with consumers over the last half a dozen years as people lost their appetite for desktops and laptops and gravitated instead to smartphones and tablets.

To prevail, the buyout by Dell and partner Silver Lake Management LLC needed a majority of the voted shares to favor the transaction, excluding the CEO’s own stake of more than 15%. The deal won key endorsements in August from Institutional Shareholder Services Inc. and two other influential proxy advisory firms. It also had the backing of a special committee of Dell’s board that evaluated potential transactions on the company’s behalf.

Michael Dell and Silver Lake sweetened their bid in early August, to $13.88 a share, including dividend payouts, from their previous offer of $13.65. In return, they secured a concession from the special board committee on new voting terms that wouldn’t count abstentions as “no” votes. Michael Dell originally had agreed to that standard, yet later said it “does not make sense,” as the high number of shares that hadn’t been voted made it more difficult to secure approval.

Dell and Silver Lake’s victory was hardly assured just two months ago, when the shareholder vote was originally scheduled. They were facing steadfast opposition from institutional investors, who said the original deal price was too low. The buyout group postponed the ballot after deciding they didn’t have enough support in favor of the deal. The vote was delayed two more times amid behind-the-scenes negotiations that resulted in the sweetened bid and amended voting rules.

Success appeared more likely earlier this week, when financier Icahn abandoned his battle to derail the deal and put forward his own recapitalization plan.

Icahn, holds an 8.9% stake, according to data compiled by Bloomberg, and Southeastern Asset Management, owns about 4%. The two investors had made a series of alternative proposals to the bid from Michael Dell and Silver Lake, suggesting that the company repurchase most of the outstanding shares at $14 apiece and offer some warrants.

A judge in Delaware Chancery Court denied a request by Icahn to speed up a lawsuit aimed at stopping Dell from changing the procedures to vote on the deal and asking for a declaration that the board had breached its fiduciary duties.

Standard & Poor’s downgraded Dell’s corporate credit rating four levels to BB- from BBB yesterday, citing concern that the CEO’s buyout would create a more leveraged capital structure and diminished free operating cash flow, hampering the company’s ability to invest in new businesses and technologies.

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